While potential home buyers definitely felt the pinch and may have felt priced out of the market amid rapid home price increases in recent years, the opposite side of the coin shows that existing homeowners, especially those who own “low-end” homes, benefited from these price hikes. Zillow revealed late last week that the bottom third of the housing market was “stronger” by the end of 2014 as home values rose by 6.8 percent in 2014 as compared to the year prior.
When the housing bubble burst in the late 2000s, low-end homeowners suffered more than those who own premium homes, and took longer to recover from the pinch of the recession. However, Zillow’s Real Estate Market Report for the December of 2014 proved that many homeowners whose homes are valued in the bottom third made a “solid comeback” late last year. Homes in the lowest pricing strata are still valued 17 percent lower than they were before the Great Recession, but that is at least much better than the 31 percent divide when home values had reached their lowest point in 2012.
This has led to more equity for owners of these properties, or owners emerging from their so-called “underwater” state, which is when the value of one’s home is lower than the amount currently owing on their mortgage. And that also means home buyers, especially younger, less-affluent first-time buyers have more options to choose from, and less chances of being trumped by all-cash customers.
Las Vegas (66.9 percent more low-end homes), Riverside, CA (47.3 percent more), and Washington, D.C. (45.7 percent more) are among the metropolitan areas that made the biggest increase in terms of low-end housing inventory.
In the light of these statistical revelations, Zillow expects the millennial demographic to overtake the so-called “Generation X” demographic as the top demo in the 2015 housing market. “In many ways, for the housing market to fully normalize, it has to start at the bottom,” opined Stanley Humphries, Zillow chief economist. “More lower-end home sellers will help meet demand from entry-level buyers, and these sellers in turn will re-enter the market in search of a slightly pricier home, which will entice more middle- and upper-tier sellers to list their homes.“
Another factor that could increase the number of first-time home buyers in 2015 is the fact that rent prices have continued to go up. Zillow’s Rent Index shows that rents increased 3.3 percent year-over-year, jumping to $1,345 in December 2014.
Overall, Zillow’s report was very positive for homeowners of all kind, but especially those in the lower tier, and those who were hitherto underwater as home values were still relatively low. It is also worth mentioning that the 6.6 percent home value increase in 2014 to a Home Value Index of $179,200 could decelerate further in 2015 to only 3 percent. Reiterating an earlier point, this should benefit first-time customers, or anyone else who may have felt that home prices were rising too fast for comfort for most of 2013 and 2014.